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NAFTA Has Been Awesome for Mexico????

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Of Emperor Tangerine’s many ridiculous statements, none is perhaps more out of touch with reality than his tough talk toward Mexico because they have just eaten our lunch since NAFTA, with life getting so much better there at the expensive of Americans. This is about as true to the lived experiences of Mexicans as the Trump Tower taco salad.

But here in Mexico, there is an increasing belief that Nafta, despite drawing an enormous amount of investment to the country, has been a big disappointment.

“At the end of the day, as a development strategy, it should have led to higher sustained growth, generated well-paid salaries and reduced the gap between Mexico and the United States,” said Gerardo Esquivel, an economist at the Colegio de México. “It has remained well below what was hoped for.”

Mexico’s economy has grown an average of just 2.5 percent a year under Nafta, a fraction of what was needed to provide the jobs and prosperity its supporters promised. More than half of Mexicans still live below the poverty line, a proportion that remains unchanged from 1993, before the deal went into effect.

Wages in Mexico have stagnated for more than a decade, and the stubborn gap between the nation’s rich and poor persists. A majority of workers in Mexico toil in the obscurity of under-the-table jobs at workshops, markets and farms for their survival.

New technologies, meanwhile, have cut many jobs while increasing productivity, which is good news for businesses but a blow to the work force.

“Mexico is seeing exactly the same phenomenon as in the United States,” said Timothy A. Wise, a research fellow at Tufts University. “Workers have declining bargaining power on both sides of the border.”

In part, Nafta’s failure to achieve its potential falls on the Mexican government’s shoulders, experts say. Rather than use the agreement as a launching point to grow and invest in many sectors of the Mexican economy, successive governments viewed the trade deal as a silver bullet for the country’s economic woes.

All of this is not lost on Mexicans, despite their government’s defense of Nafta. A recent poll by Parametría, a respected Mexican pollster, found that more than two-thirds of respondents believed that Nafta had benefited American consumers and businesses, while just 20 percent believed it had been good for them. The poll, consisting of 800 interviews in people’s homes, had a margin of sampling error of plus or minus 3.5 percentage points.

“There is a grand narrative in the United States that Mexico was the great winner of Nafta,” said Fernando Turner Dávila, the secretary of the economy and labor in the industrial state of Nuevo León. “Meanwhile, here in Mexico, they only see the benefits, which are glorified. They never see the downsides, much less talk about them.”

And certainly my own experiences in Mexico do not counter these ideas, not with people in small communities going years without seeing their families because American agricultural policy dumps corn, beef, and pork on the Mexican market, making it impossible for people to farm and forcing them to migrate to the United States for work. Free trade policy has led to as bitterness in Mexico as the United States. Not surprisingly, like in the US government, it’s as much about failures of the Mexican government to plan for what NAFTA would do as about trade itself.

But Nafta was not necessarily the problem. Much of the misstep, experts say, was the Mexican government’s belief that the agreement would be enough to transform the economy all by itself. Thinking of the trade deal as a panacea, the government failed to come up with a broader policy or make the investments needed to use the trade agreement as a lever to transform the whole economy.

Investments in research and development, for instance, have failed to materialize in both the public and private sectors. Government spending on infrastructure has dropped to its lowest level in seven decades, experts say, leaving an unreliable network of ports, highways and even internet connections across the country. Burdensome regulation and corruption stifled investment, while the nation’s banks lent far less than their Latin American peers, leaving small companies to scramble for credit.

Even where Nafta is succeeding, it is not pushing wages up, or creating enough needed jobs.

Similarly, the US government has assumed that free trade would take care of the problems that trade would cause. To say the least, it has not, especially in our older industrial communities. There is nothing per se wrong with significant trade between nations or even necessarily the outsourcing of jobs, if the social and economic safety net is there to ensure that conditions remain good for those who lost their jobs and international regulations to ensure that people overseas are not exploited. Both the American and Mexican governments have failed miserably on these issues.

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  • Rob in CT

    Missing word, I think:

    Free trade policy has led to as bitterness in Mexico as the United States

    As much bitterness, no?

    There is nothing per se wrong with significant trade between nations or even necessarily the outsourcing of jobs, if the social and economic safety net is there to ensure that conditions remain good for those who lost their jobs and international regulations to ensure that people overseas are not exploited. Both the American and Mexican governments have failed miserably on these issues.

    I appreciate the nuanced take here, which you don’t always go for. I think this is exactly right.

    • Free trade policy has led to as bitterness in Mexico as the United States

      As much bitterness, no?

      “Ass-biterness”: it’s bitten workers in both nations on the ass.

    • sapient

      I second the nuance.

    • Linnaeus

      Not directed at you, but a bit more nuance about 20-30 years ago would have been nice, too.

  • Victor Matheson

    Actually, another major issue affecting Mexico is china. While Mexican workers can undercut Americans, the Chinese can undercut them in the same way. When I was teaching a course of economic development back in 2002, we visited Juarez television factories. They had already lost all of their business on smaller TV sets to China and were terrified they would soon lose the bigger sets to Asian manufacturers. They had cheap labor but not cheap enough unless transportation costs were huge.

    • Brett

      Without NAFTA, they might have been hit even harder. They’d only be under WTO rules, meaning they wouldn’t have had any more favorable access to the US in terms of trade rules compared to China.

    • Dr. Acula

      When I worked at a TLA tech company, not long after I started in the mid-90s, they decided to start using Mexicans to replace American workers. Then they moved to Indians, then Chinese, then Vietnamese. I have no idea where they’re outsourcing to now, as they booted me in 2009. I’m sure they’ve found somewhere where workers are treated even worse.

      • THIS. Race to the bottom as capital flows freely and labor has to be free to match. (And the answer to all of those bullshit “But we have helped tens of millions of Chinese people,” which is the “eat your vegetables, there are people starving in China” of the 21st century and has the same answer: name three.)

        Good thing you don’t need those laborers to pay anything to eat, have shelter, stay healthy, learn their trade…

  • sky

    Although we may sell them food, our trade deficit with Mexico has gone way up since NAFTA was passed. That generally creates demand for labor in the exporting country. I suspect something else is causing problems in Mexico, and scrapping NAFTA would just exacerbate the problem.

    I’m also skeptical of the need to centrally plan the economy. The government needs to provide security, strong property rights, low corruption, and an educated workforce. Then, strong unions, a minimum wage, and other labor laws can get the workers a bit more.

    • Linnaeus

      Is Erik arguing for central planning here, at least as the term has typically been used? I don’t see it.

    • dcoffin

      It’s true that our trade deficit with Mexico has expanded. Using monthly export and import data since 1985 (as far back as the data series goes on the St. Louis Fed’s FRED database, our exports to Mexico in January 1985 were equal to about 0.03% of US personal income (monthly GDP data are not available), and our imports were about 0.04%. Our monthly exports to Mexico (unadjusted for inflation) were 17 times as large in October 2016 as in January 1985; our imports were 20 times as large. As a percentage of personal income, the trade deficit with Mexico increased from about 0.005% to about 0.038% of personal income, so it was nearly 8 times as large as a percent of personal income. But it’s still pretty small relative to the size of the US economy.

  • Brett

    How well would Mexico have done without NAFTA? They’d still be importing food from the US, and their agricultural sector probably would have privatized partially or wholly in the 1990s and early 2000s anyways (which would be about as fair and free of coercion as you would expect in Mexico).

    In terms of manufacturing, they’d be worse off. Mexico would only be under WTO rules, same as China – meaning that China would be kicking their butt in traded goods. Meanwhile, the Mexican government’s track record of investment and management still probably would have sucked, although that’s not just on them – under-investment in general is a big problem in Latin American countries.

  • the shadow

    I suspect it’s a mistake to think of any country as a whole as being the beneficiary of NAFTA. It would seem that NAFTA was a bad deal for working people in Canada, Mexico and the USA, and a good deal for the ownership class in all three countries.

    • BiloSagdiyev

      Oh, there you go bringing class into it again!

  • dogboy

    It’s almost as if there were a group or class of people who gained from NAFTA and a larger more diffuse group who lost out. Maybe like the system had some sort of overarching structure that moved wealth from those who created it to those owned the way it was created. Weird.

  • Bruce Vail

    I’m eagerly awaiting news from the Trump camp. There was a story a couple of days ago that said Trump wants to “re-open” NAFTA as one of his first official acts as the new president. Where is that headed?

    • Suppose NAFTA, TPP, and TTIP all fail. That would leave the WTO as the last trade structure standing and the Uruguay Round as its last set of norms. (Hardcore trade liberals object to regional deals as distorsions, and blind alleys on the path to the nirvana of global free trade, so the development would get applause in unlikely quarters.) The decade – long attempt to progress beyond Uruguay in the Doha round was finally abandoned a few years ago as impossible. Trump will find no takers for a plan to reopen the WTO and Uruguay agreements. Alternatively everybody says sure, let’s settle in for another ten years if negotiations on the Trump round.

      In practice, his one real option is going nuclear, just walking out as with the Paris climate agreement. Then it’s an unrefereed trade war, USA vs. The Rest. This is not winnable in Trumpview.

  • Phil Perspective

    Burdensome regulation and corruption stifled investment, while the nation’s banks lent far less than their Latin American peers, leaving small companies to scramble for credit.

    Burdensome to the ownership class, no doubt, because it prevents them from fucking the little guy even faster. They always throw this out there.

  • anonymous

    The answer isn’t that NAFTA has been more (or less) awesome for Mexico vs the US. The answer is that NAFTA has more awesome for the transnational capitalist class and less awesome for the working class in both countries.

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